Self-storage business going through another change

Steve Wilson, managing partner of Hide-Away Storage LLC, which operates 12 storage facilities in Sarasota and Manatee counties, agrees that the outlook has brightened some. While the company's $9 million in annual revenue remains down about 25 percent from seven years ago, business has picked back up in the past year.

Published: Monday, March 25, 2013 at 1:00 a.m.

Last Modified: Sunday, March 24, 2013 at 5:14 p.m.

Southwest Florida's self-storage industry is beginning to show signs of a turnaround after boom-era overbuilding crimped the business and caused rental rates to plummet.

The overbuilding came amid a transformation by the industry, from out-of-sight industrial use to a recognizable retail component. Today, numerous and massive storage facilities occupy prime real estate along busy corridors throughout the region, including Fruitville Road and University Parkway.

But industry analysts say developers became a little too zealous during the housing bubble, causing many newly built self-storage locations to fold when the market crashed beginning in 2007.

Like many businesses that rely on housing, though, self-storage revenue is starting to stabilize.

"Sarasota is a growing market, and that's why you saw this influx of developments in the area," said Todd Amsdell, president of the Cleveland-based Compass Self Storage, which has two locations in Sarasota and one in Bradenton.

Self-storage as an industry began migrating in the mid-1990s from tucked away business parks to more valuable land with commercial frontage, competing with the likes of McDonald's and Starbucks for property.

That came amid an industry consolidation as real estate investment trusts bought out mom-and-pop developers, who had been a standard part of a fragmented industry.

The geographical shift stemmed from a desire to get as close as possible to centers anchored by major big-box retailers, a move aimed at drawing potential customers from passing cars -- a model that suits the industry long-term, said Nicholas Jodhan, whose Sarasota company, Gemini Plus LLC, builds self-storage centers for operators around the world.

Driven by population growth and a rise in home sales, developers viewed self-storage locations, which generally range from 45,000 to 100,000 square feet, as a steady income stream. The introduction of climate-controlled units also allowed operators to increase rents, which made more desirable locations more feasible.

"Self-storage is not an impulse product," Jodhan said. "People know if they need storage space or not, but people also remember what they have seen. That's why we try to put them in such visible spaces. You drive by, look once, and you know where it is when you need it."

Brightening outlook

Though the industry has regained some ground lost to the Great Recession, self-storage rental and occupancy rates remain down in Southwest Florida.

More than 55,000 self-storage facilities are open nationwide, more than three-fourths of which are owned by smaller, independent operators.

Occupancy rates are considered at healthy levels when they reach 80 percent. Sarasota and Manatee county averages stand at about 82 percent, but much it was the result of special promotional rental rates that, when over, could cause facilities to empty.

Even the lingering effects of the Great Recesion and the prolonged housing downturn have helped the industry.

"We had a terrible recession and a lot of people lost their homes," said Barry Seidel, president and founder of American Property Group of Sarasota Inc., a commercial real estate brokerage firm.

"Now they have all moved into small apartments, and they have no place to put all of their stuff. They don't want to get rid of it, so they turn to self-storage," Seidel said.

In 2011, self-storage real estate investment trusts produced a return of about 35 percent -- higher than any other public real estate investment -- for two straight years, according to the National Association of Real Estate Investment Trusts, an industry group.

For Steve Wilson, who operates 12 storage facilities in Sarasota and Manatee counties, agrees that the outlook has brightened some.

The managing partner of Hide-Away Storage LLC had to lay off nearly half of his staff of 70 since 2006. Just 40 workers remain on his payroll.

While the company's $9 million in annual revenue still remains down about 25 percent from seven years ago, business has picked back up in the past year, he said.

To ease the cost of operation, Wilson's two newest facilities are manned with a digital front desk kiosk that takes the place of an on-site manager. Revenue from Hide-Away's mobile storage product, similar to Pods, also is up about 30 percent.

"There's been a lot of stress and strain with ours and other storage facilities," Wilson said. "The Great Recession hit and demand fell through the floor. We're starting to fill up again, but at much lower rental rates."

Wilson said several facilities across Southwest Florida have closed in the past year as a result of financing renewals that owners couldn't afford.

"Many just walked away," he said. "Others sold for much less than the cost to build."

Many of the storage centers during the boom years were built on 10-year loans from conduit lenders.

Now that borrowing requirements have become more stringent, it can often cost millions of dollars in commitments to renew, Wilson said.

His typical project takes about seven years just to stabilize, or break even.

The Sarasota-Bradenton International Airport also owns a self-storage facility to support its primary operations.

The airport began leasing the property to a self-storage operator in 1970, and when the owner of University Self Storage wanted to call it quits in 1999, airport officials decided to acquire the company and operate it themselves.

With 232 tenants and an 88 percent occupancy rate, the storage facility generates about $230,000 toward the airport's bottom line each year.

That facility, too, has seen sales rise lately.

"It's a big revenue generator for us," said Rick Piccolo, the airport's president and chief executive. "It has done pretty well over the years."

<p>Southwest Florida's self-storage industry is beginning to show signs of a turnaround after boom-era overbuilding crimped the business and caused rental rates to plummet.</p><p>The overbuilding came amid a transformation by the industry, from out-of-sight industrial use to a recognizable retail component. Today, numerous and massive storage facilities occupy prime real estate along busy corridors throughout the region, including Fruitville Road and University Parkway.</p><p>But industry analysts say developers became a little too zealous during the housing bubble, causing many newly built self-storage locations to fold when the market crashed beginning in 2007.</p><p>Like many businesses that rely on housing, though, self-storage revenue is starting to stabilize.</p><p>"Sarasota is a growing market, and that's why you saw this influx of developments in the area," said Todd Amsdell, president of the Cleveland-based Compass Self Storage, which has two locations in Sarasota and one in Bradenton.</p><p>Self-storage as an industry began migrating in the mid-1990s from tucked away business parks to more valuable land with commercial frontage, competing with the likes of McDonald's and Starbucks for property.</p><p>That came amid an industry consolidation as real estate investment trusts bought out mom-and-pop developers, who had been a standard part of a fragmented industry.</p><p>The geographical shift stemmed from a desire to get as close as possible to centers anchored by major big-box retailers, a move aimed at drawing potential customers from passing cars -- a model that suits the industry long-term, said Nicholas Jodhan, whose Sarasota company, Gemini Plus LLC, builds self-storage centers for operators around the world.</p><p>Driven by population growth and a rise in home sales, developers viewed self-storage locations, which generally range from 45,000 to 100,000 square feet, as a steady income stream. The introduction of climate-controlled units also allowed operators to increase rents, which made more desirable locations more feasible.</p><p>"Self-storage is not an impulse product," Jodhan said. "People know if they need storage space or not, but people also remember what they have seen. That's why we try to put them in such visible spaces. You drive by, look once, and you know where it is when you need it."</p><p><b>Brightening outlook</p><p></b></p><p>Though the industry has regained some ground lost to the Great Recession, self-storage rental and occupancy rates remain down in Southwest Florida.</p><p>More than 55,000 self-storage facilities are open nationwide, more than three-fourths of which are owned by smaller, independent operators.</p><p>Occupancy rates are considered at healthy levels when they reach 80 percent. Sarasota and Manatee county averages stand at about 82 percent, but much it was the result of special promotional rental rates that, when over, could cause facilities to empty.</p><p>Even the lingering effects of the Great Recesion and the prolonged housing downturn have helped the industry.</p><p>"We had a terrible recession and a lot of people lost their homes," said Barry Seidel, president and founder of American Property Group of Sarasota Inc., a commercial real estate brokerage firm.</p><p>"Now they have all moved into small apartments, and they have no place to put all of their stuff. They don't want to get rid of it, so they turn to self-storage," Seidel said.</p><p>In 2011, self-storage real estate investment trusts produced a return of about 35 percent -- higher than any other public real estate investment -- for two straight years, according to the National Association of Real Estate Investment Trusts, an industry group.</p><p>For Steve Wilson, who operates 12 storage facilities in Sarasota and Manatee counties, agrees that the outlook has brightened some.</p><p>The managing partner of Hide-Away Storage LLC had to lay off nearly half of his staff of 70 since 2006. Just 40 workers remain on his payroll.</p><p>While the company's $9 million in annual revenue still remains down about 25 percent from seven years ago, business has picked back up in the past year, he said.</p><p>To ease the cost of operation, Wilson's two newest facilities are manned with a digital front desk kiosk that takes the place of an on-site manager. Revenue from Hide-Away's mobile storage product, similar to Pods, also is up about 30 percent.</p><p>"There's been a lot of stress and strain with ours and other storage facilities," Wilson said. "The Great Recession hit and demand fell through the floor. We're starting to fill up again, but at much lower rental rates."</p><p>Wilson said several facilities across Southwest Florida have closed in the past year as a result of financing renewals that owners couldn't afford.</p><p>"Many just walked away," he said. "Others sold for much less than the cost to build."</p><p>Many of the storage centers during the boom years were built on 10-year loans from conduit lenders.</p><p>Now that borrowing requirements have become more stringent, it can often cost millions of dollars in commitments to renew, Wilson said.</p><p>His typical project takes about seven years just to stabilize, or break even.</p><p>The Sarasota-Bradenton International Airport also owns a self-storage facility to support its primary operations.</p><p>The airport began leasing the property to a self-storage operator in 1970, and when the owner of University Self Storage wanted to call it quits in 1999, airport officials decided to acquire the company and operate it themselves.</p><p>With 232 tenants and an 88 percent occupancy rate, the storage facility generates about $230,000 toward the airport's bottom line each year.</p><p>That facility, too, has seen sales rise lately.</p><p>"It's a big revenue generator for us," said Rick Piccolo, the airport's president and chief executive. "It has done pretty well over the years."</p>